Oil prices extended their rally on Thursday, with Brent crude climbing $1.47 to $103.38 a barrel by mid-morning in London. The surge was driven by escalating geopolitical tensions in the Persian Gulf, where negotiations between the United States and Iran have reached a deadlock, and new disruptions in the Strait of Hormuz have raised concerns about global supply. U.S. West Texas Intermediate crude also gained, rising $1.40 to $94.36 a barrel.
Geopolitical Risks Intensify
The Strait of Hormuz, a critical chokepoint for about 20% of the world's oil shipments, has become a flashpoint after Iran seized two vessels in the corridor on Wednesday. The U.S. maintained its naval blockade, and the White House indicated that President Donald Trump has not set a new deadline for talks following the ceasefire extension. Bjarne Schieldrop, an analyst at SEB, noted that market sentiment has shifted significantly, with traders now pricing in a prolonged standoff instead of a quick resolution. Later in the session, Brent hovered near $105 as European shares slipped and bond yields edged higher, reflecting broader risk aversion.
U.S. Inventory Data Adds Pressure
Fresh data from the U.S. Energy Information Administration (EIA) intensified the supply concerns. While crude stockpiles rose by 1.9 million barrels last week, gasoline inventories plunged by 4.6 million barrels, and distillate supplies—including diesel and heating oil—fell by 3.4 million barrels, both exceeding analysts' expectations. Meanwhile, U.S. crude and petroleum product exports surged to a record 12.88 million barrels per day, underscoring robust global demand for American barrels.
Shifting Trade Flows and Refinery Cuts
The disruption in Hormuz is forcing buyers to seek alternative supplies. Asian refiners are increasingly turning to lighter grades from the United States, Kazakhstan, and West Africa. However, the region's crude imports are expected to drop 22% year-over-year in April to 20.4 million barrels per day, the lowest level since 2016. Refinery runs are also set to decline, falling to approximately 28.5 million barrels per day in April and May, down from March's 30.4 million. “The deepest run cuts will occur in April,” said Amir Abu Hassan, an analyst at FGE NexantECA.
Refined Product Squeeze
Swapping Middle Eastern barrels for alternative grades does not fully alleviate the pressure on refined fuels. According to Vortexa analyst Emma Li, Middle East crudes typically yield around 60% middle distillates—mainly diesel and jet fuel—compared with just 40% from WTI. Kpler estimates that middle-distillate supply losses in April could range between 1.8 million and 2.0 million barrels per day, most of it diesel. This imbalance is likely to keep refined product markets tight even if crude prices moderate.
Broader Market Ripples
The oil rally reverberated across financial markets. European equities declined, bond yields rose, and investors weighed the potential for further escalation in the Gulf. “Markets look very on edge here,” said Charu Chanana, chief investment strategist at Saxo, describing the environment as a “no-war, no-peace zone.” Still, analysts caution that any sign of diplomatic progress or easing of shipping restrictions could quickly erode the geopolitical risk premium.
Demand Outlook Revised Lower
Elevated prices are beginning to weigh on consumption. S&P Global slashed its 2026 oil demand growth forecast to 400,000 barrels per day from a previous estimate of 1.1 million. The firm also noted that approximately 178 refineries—representing about 40% of global refining capacity—are affected by the Hormuz closure. For now, traders remain focused on immediate supply disruptions rather than betting on a diplomatic resolution. Unless the situation in the Strait of Hormuz eases and refineries ramp up operations, crude prices are likely to remain elevated, with refined products potentially tightening further than crude itself.
